Foreclosures have been one of the favorite real estate investment strategies for real estate investors. Thus, if you are wondering how to buy a foreclosure home, then keep reading.
Related: How to Strike the Best Deals When Buying a Foreclosed Home?
The real estate investing business is all about buying an investment property that is profitable. Therefore, do not be fooled by the term “foreclosure”. Though you will get to buy a cheaper real estate property, this does not mean that it is always profitable as an investment. So, learn here how to buy a foreclosure home that is worth the investment.
How to buy a foreclosure home: Choose a financing strategy
You can’t simply start thinking about how to buy a foreclosure home without choosing a financing strategy. Therefore, if you are wondering how to buy foreclosed homes with no money, the first thing you need to do is find a lender. Of course, this one sounds easy. You can always go to a bank or a mortgage broker and get a loan. However, if you choose to go to a bank, then you should consider a local one. The thing about local banks is that they want to attract clients, and thus you get to deal with less strict requirements.
However, if you choose a mortgage broker, keep in mind that this is only a middleman. The job of a mortgage broker is to find you a lender with the best deal. So, you will have to consider the commission he/she will charge, which is considered as one of your investment expenses. Whether you connect directly with a lender or do it through a mortgage broker, you will need to get a pre-approval letter from the lender. This step is very important as you will not get the deal unless you provide this letter to the property seller.
Furthermore, if you can afford to pay in cash, it is usually the best you do that. Foreclosure sellers tend to give priority to cash buyers. Therefore, you will have a better chance at landing the deal.
How to buy a foreclosure home: Hire a real estate agent
In this case, you do not need just any real estate agent, but a foreclosure professional. Dealing with foreclosures is different from dealing with other property types if you want to get the best deals. A real estate agent who specializes in foreclosed properties knows exactly what makes for the best foreclosure deal. Moreover, he/she knows exactly where to look for it. Sometimes, real estate agents have access to real estate resources that real estate investors do not have. So, you want to make sure that you are recruiting all the available resources to get the best investment opportunities at all times.
Related: 8 Resources That Will Change Your Experience as a Real Estate Investor
How to buy a foreclosure home: Do not settle for the first foreclosed property
When looking for properties for sale, you will have to view a few properties before you choose the right investment for you. Therefore, do not settle for the first foreclosed property that comes to your hands. There is a process to go through in order to pick the right one. We will go into more detail about the investment property valuation methods in the next two sections.
How to buy a foreclosure home: Conduct investment property analysis
Investment property analysis is very important. The best real estate investment deals are associated with proper math. Therefore, you will need to learn to calculate real estate metrics. These metrics are part of property valuation, and they are the main determinants of a profitable foreclosure property. Learn to calculate the cap rate and the cash on cash return as they are the measures to estimate the return on an investment property. The cap rate measure deals with the return on the entire cash involved, while the cash on cash return measure calculates the return on the cash invested.
For this specific step, feel free to check Mashvisor’s investment property calculator. It is the best real estate analytics tool you could ask for. This tool will save you the time and efforts to perform investment property analysis. It will also help you conduct real estate market analysis that we will explain in the next section.
How to buy a foreclosure home: Conduct real estate market analysis
Another important analysis process is the real estate market analysis. This particular valuation method allows you to compare between several similar investment properties within a particular area. The importance of this step comes when choosing the best real estate investment deal. When you compare real estate properties, you have to take into consideration the investment property analysis and choose based on the figures you have.
Another advantage of the real estate market analysis is scanning the location. It really depends on the profitability of a location based on data of past market trends.
How to buy a foreclosure home: Choose the right foreclosed property
Now that you have performed both investment property analysis and real estate market analysis, you get to choose. Remember that you will have several property choices to pick one that has the best valuation indicators. The higher the figures, the better the investment opportunity. Ask your real estate agent to help you with it if you are a beginner real estate investor. Real estate agents know exactly what to look for in a foreclosure home for the best deal.
How to buy a foreclosure home: Avoid auctions
Now, if you are financing your foreclosure home with an external financing strategy, it would be a better idea to actually avoid auctions. In such places, it is better to pay in cash so that you get a better chance of getting the deal for yourself.
How to buy a foreclosure home: Estimate the repairs
One thing you must know about buying a foreclosure is that it is usually in a distressed situation though it does not mean that the whole property is damaged. However, you should expect to spend a few hundred dollars to fix it, at least. Therefore, estimating the damages and repair costs can be a strong indicator of a profitable deal.
Related: 5 Tips to Prevent Damages from Tenants
Finally, in order to find the best real estate investments (local and out of state), check out the property listings on Mashvisor. Oh, wait! Do not forget about our investment property calculator as well. Make sure to use it for your real estate investing business.